May 16, 2024
CBO Assumes Institutions Would Close or Leave Student Loan Program If CCRA Enacted.
The Congressional Budget Office (CBO) estimates that some institutions would close or leave the federal student loan program if the College Cost Reduction Act (CCRA) were to be enacted. The CCRA is the House Committee on Education & the Workforce’s proposed rewrite of the Higher Education Act. The prediction came as part of a cost estimate done by CBO, a routine requirement for any legislative proposal considered by the House or Senate.
While the estimate does not specify the type of institutions most likely to be most affected by the bill, it is clear by the Committee’s own estimates and NAICU’s independent analysis that the private, nonprofit sector would bear the worst of the negative impact. This outcome occurs primarily because the bill bases federal penalty payments on a complex formula that weighs the total price students are charged, excluding federal student aid, against earlier graduates’ earnings. The bill also establishes limits on the total amount of federal aid a student may receive at the median cost of their program across all similar programs, regardless of sector. By definition, such an approach disadvantages programs at private colleges that do not benefit from state tuition subsidies.
In total, CBO estimates the bill would reduce federal spending on student aid programs by more than $185 billion over ten years (the standard window for federal budget estimates). Of that, more than $9 billion in savings would come from institutional risk-sharing payments and nearly $16 billion would be saved by institutions that would leave the federal student loan programs altogether.
In the estimate, CBO staff wrote:
“Reduction in Institutional Participation in Federal Student Aid Programs. Given the high cost of risk-sharing payments to institutions and the considerable uncertainty about that cost over the lifetime of any given loan, CBO expects that some institutions would take action to avoid making those payments: Some would chose not to participate in the federal student loan program, others would close certain institutional programs, and still others would close altogether.”
CBO also predicts that some students at institutions that close will stop their education entirely, saving some Pell Grant funding for those that drop out.
The CCRA passed the House Education & the Workforce Committee in January on a party line vote. The release of the CBO estimate now allows the bill to come before the full House for consideration.
While the estimate does not specify the type of institutions most likely to be most affected by the bill, it is clear by the Committee’s own estimates and NAICU’s independent analysis that the private, nonprofit sector would bear the worst of the negative impact. This outcome occurs primarily because the bill bases federal penalty payments on a complex formula that weighs the total price students are charged, excluding federal student aid, against earlier graduates’ earnings. The bill also establishes limits on the total amount of federal aid a student may receive at the median cost of their program across all similar programs, regardless of sector. By definition, such an approach disadvantages programs at private colleges that do not benefit from state tuition subsidies.
In total, CBO estimates the bill would reduce federal spending on student aid programs by more than $185 billion over ten years (the standard window for federal budget estimates). Of that, more than $9 billion in savings would come from institutional risk-sharing payments and nearly $16 billion would be saved by institutions that would leave the federal student loan programs altogether.
In the estimate, CBO staff wrote:
“Reduction in Institutional Participation in Federal Student Aid Programs. Given the high cost of risk-sharing payments to institutions and the considerable uncertainty about that cost over the lifetime of any given loan, CBO expects that some institutions would take action to avoid making those payments: Some would chose not to participate in the federal student loan program, others would close certain institutional programs, and still others would close altogether.”
CBO also predicts that some students at institutions that close will stop their education entirely, saving some Pell Grant funding for those that drop out.
The CCRA passed the House Education & the Workforce Committee in January on a party line vote. The release of the CBO estimate now allows the bill to come before the full House for consideration.
For more information, please contact:
Justin Monk